What are the opportunities and challenges for textile companies investing in India?
India is one of the fastest growing economies in the world today, and foreign investment has become an important pillar supporting India’s economic growth. my country is India’s largest trading partner, and India is also my country’s largest trading partner in South Asia. According to Chinese customs statistics, bilateral trade between China and India increased 25 times in the 11 years from 2000 to 2011, with an average annual growth rate of 34%. In 2014, bilateral trade reached US$70.59 billion, of which China’s exports to India were US$54.22 billion, a year-on-year increase of 12%.
The textile industry occupies an extremely important position in India’s national economy. The latest annual report of the Ministry of Textiles of India shows that the textile industry contributes 4% of India’s GDP, 14% of its total industrial output, and 11% of its export earnings. The Indian textile industry has sufficient labor resources, with a labor force of 800 million people under the age of 35. Advantages such as sufficient textile raw materials and government policy support have made the Indian textile industry stronger in recent years. According to statistics, India is the world’s third largest cotton producer after China and the United States, the world’s largest jute producer, the second largest raw silk producer, and the world’s second largest textile and garment producer after China.
To this end, this issue specially invites experts on Indian industrial investment issues to conduct in-depth analysis of the opportunities and challenges of textile industry investment in India.
There are many opportunities for cooperation in the textile industry between China and India
The main products of the Indian textile industry include cotton textiles, man-made fibers, wool products, silk fabrics, jute products, handwoven products, carpets, handicrafts and ready-made garments. Major textile companies include National Textile Corporation of India, National Jute Manufacturing Corporation of India, Cotton Corporation of India, etc. Textiles and garments account for about 12% of India’s annual exports. In 2015, the export value of textiles and garments was basically the same as the previous year, at US$37.65 billion.
India has become China’s largest importer of cotton yarn in recent years. From August 2014 to July 2015, India exported a total of 1.316 million tons of cotton yarn, of which 48.5% was exported to China and 12% to Bangladesh. With the implementation of the China-India-Bangladesh-Myanmar Economic Corridor, the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road” strategies, India has become a major country in the “Belt and Road” economic belt.
India is one of the fastest growing economies in the world today, and foreign investment is an important pillar supporting India’s economic growth. In the first 11 months of the 2015/2016 fiscal year (April 2015 to February 2016), India attracted a total of US$51 billion in foreign direct investment, a record high. At present, “Invest in China, Make in India” is becoming the convergence point for the economic and trade development between China and India.
India’s export encouragement policy states that enterprises that export all their products, domestic and foreign enterprises in export processing zones and free trade zones are exempt from income tax for five years; enterprises import machinery, equipment, parts and raw materials used to produce export goods are exempt from tax Tariffs; 25% income tax reduction for joint ventures in backward areas for 10 years.
The textile industry is one of the important sources of India’s export revenue and the industry that provides the most jobs outside of agriculture. The “Make in India” initiative promoted by the Modi government and the growth of foreign direct investment projects have driven significant growth in India’s employment rate.
In the 1980s, the average economic growth rate in India was only 3.5%. At the beginning of the 21st century, it entered a stage of rapid growth of 8% to 9%. In the next 10 years, India is expected to add 110 million people to its labor force.
In particular, India has 800 million young people under the age of 35, which can provide abundant labor resources for Indian manufacturing industries such as textiles. In addition, India’s relative lack of textile R&D capabilities is also an important factor constraining the development of the Indian textile industry. Therefore, the two countries have potential cooperation opportunities in the textile field.
Indian textile market structure and development potential
1. Indian textile market structure
India’s main cash crops include cotton, jute, etc., which are the main natural fiber raw materials for the Indian textile industry. In the 2014/2015 fiscal year, agricultural GDP growth was 1.1%. India is the world’s third largest cotton producer after China and the United States. It is also the world’s largest jute producer and the second largest raw silk producer. India’s cotton output has continued to grow in recent years, and its domestic cotton textile industry is basically self-sufficient in raw materials.
The textile industry is India’s largest industry, accounting for 20% of the country’s manufacturing industry. The textile industry’s GDP accounts for approximately 6% of India’s GDP. However, compared with the current situation of China’s textile industry, the weakness of India’s textile industry is that it is limited by resources and has not yet formed a cluster of economies of scale. Textile enterprises are small in scale, scattered, have insufficient investment, and have backward production equipment and production technology.
The advantage of India’s textile industry is low labor prices. According to a survey by the US “Washington Post”, the average wage in China’s textile industry is US$0.68/hour, while that in India is US$0.38/hour. The Indian textile industry has maintained a strong growth momentum with its abundant labor and raw material resource advantages.
The output of raw materials such as cotton, wool, silk and jute is sufficient, and the labor force advantage is obvious. These two points enable India to maintain a large industrial competitive advantage. Predictions show that India’s textile and garment share of total world trade will increase from the current 4.5% to 8% in 2020, and is expected to reach US$80 billion.
In addition, according to an analysis report by Technopak Advisors, an authoritative Indian retail market research organization, the size of the Indian ready-to-wear market is growing at an average annual rate of 11%..
In India, the luxury high-end market and the cheap low-end market are obviously polarized. Chinese textiles occupy a very small share of the Indian market. Due to the low degree of integration with local culture and customs, 45% of India’s current textile consumption still comes from the demand for traditional clothing; Indian consumers have a conflicting sentiment towards Chinese products. While they love them for their high quality and low price, they are unwilling to throw them away. Characteristics of national clothing. Currently, the Chinese textiles and clothing sold in the Indian market are monopolized by Indian buyers stationed in China. In order to seek higher profits, these Indian buyers often purchase the lowest-end products from China and even sell them in stock across India. This results in 90% of the Chinese textiles in the entire Indian retail market being low-end products, while China is truly cost-effective. The products cannot be understood by Indian consumers due to the lack of effective sales channels.
Several issues that need to be paid attention to in industrial investment cooperation
1. Promote communication and cooperation between the two parties and achieve mutual benefit and win-win results in China-India textile trade.
Since China and India are both major textile producers and exporters, the competition in textile trade between China and India is self-evident. China and India should strengthen understanding and reduce trade friction. The two sides can negotiate and sign a free trade agreement to promote the expansion of the textile production scale and trade scale of the two countries in the process of regional economic integration, so that the two countries can maintain the textile competitiveness of China and India when the comparative advantages of the international textile industry undergo various changes. industry’s competitive advantage.
At the industry level, China should actively give play to the guidance, supervision and coordination functions of industry organizations, strengthen dialogue and consultation between the textile industries of China and India, guide textile exports and monitor changes in textile export quantities and prices, and reduce the risk of low-price competition. anti-dumping issues caused by sales, etc., and strive to achieve mutual benefit and win-win results in Sino-Indian textile trade in healthy competition.
2. Strengthen dialogue under the multilateral trading system and seek more benefits for both parties.
While textile integration has brought huge business opportunities to the textile trade between China and India, it has also brought new problems to the development of the textile industries of the two countries. Developed countries have increasingly stringent and demanding requirements in terms of environmental protection and trademark registration systems. Both China and India are facing non-tariff restrictions from developed countries on imported textiles and garments. At the same time, as developing countries, China and India’s textile competitiveness advantages are mainly reflected in low cost and low price. However, in terms of product quality, there is a large gap between the technical standards and requirements set by developed countries. China and India can join forces to participate in multilateral trade negotiations, enhance the voice of developing and developed countries in dialogue, seek more international market opportunities for both parties, and strive for greater benefits.
3. Broaden channels, actively promote complementarity in the textile industries of the two countries, and increase cooperation.
Although the textiles of China and India are highly competitive in the international market, the textile industries of the two countries also have great potential for complementary cooperation.
Taking textile raw materials as an example, as India’s domestic silk consumption and demand increase year after year, China’s exports of Indian silk commodities continue to increase. India has become the largest market for China’s silk commodity exports, accounting for 10% of China’s raw silk exports. Nearly 50% of the total. While consolidating and increasing traditional textile trade, China and India should focus on expanding textile trade by changing the commodity structure.
Since India’s textile production equipment and production technology are relatively backward, the production capacity of the Indian textile industry is restricted. India has a large market demand for textile machinery, which provides business opportunities for the export of Chinese textile machinery to India.
China has comparative advantages in the construction of the textile industry chain, product design, research and development, and production technology. India has comparative advantages in raw material supply and labor costs. Through investment cooperation, the two countries can achieve a reasonable allocation of resources and expand production. Scale and trade scale mutually promote technological progress and restructuring of the textile industry. The two countries can also achieve complementary advantages through various ways and means such as jointly building textile industrial parks and corporate mergers and acquisitions. These are also the two cooperation methods that Indian companies are most interested in.
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